Asia FX Firms as Dollar Sits Near 6-Week Low; Rupee Extends Rebound on RBI Hold

VG Markets · 2026-08-05T07:00:40Z
Asia FX Firms as Dollar Sits Near 6-Week Low; Rupee Extends Rebound on RBI Hold

Most Asian currencies gained Wednesday as the dollar index held near a six-week low of 99.80, pressured by fading Middle East risk premia as US-Iran diplomacy weighs on oil.

India leads the move. USD/INR fell 0.3% to 95.06 after the RBI's Monetary Policy Committee unanimously left the repo rate at 5.25% — its fourth consecutive hold — while retaining a neutral stance. Governor Sanjay Malhotra cited the West Asia conflict's disruption to "trade routes and supply chains" and elevated 2026 inflation as reasons for caution.

Context traders should weigh:

  1. Recovery scale: The rupee has clawed back roughly 2% since May, when it neared record lows of 96–97 amid conflict-driven pressure
  2. Defense cost: RBI's spot sales and forex swaps to support the currency helped drain reserves from a record $728.5 billion in February to around $682 billion by late July, though reserves have started rebuilding
  3. Policy signal: A hold-plus-neutral combination, after 125bps of cuts through 2025, suggests the RBI has little appetite to sacrifice growth purely to defend the rupee further

Regional moves: USD/JPY eased 0.2% to 157.50, still holding most of last week's intervention-driven gains after Bessent pledged Washington would "do whatever it takes" for orderly yen markets. USD/KRW fell 0.4%, USD/SGD dipped 0.1%, and USD/CNY eased 0.1% even as China's services PMI slowed to a 10-month low. Oil's third straight decline — on a drafted US-Iran interim proposal — remains the common tailwind across the region; Friday's US payrolls report is the next major test for dollar direction.